CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.

Established in 1974

Over 185,000 clients worldwide

15,000 markets worldwide

The trading playbook for the new week

We start a huge week for market participants on a fairly soggy note. Our call for Asian markets is mixed, with small weakness in Australia, offset by modest buying in Japan and Hong Kong.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.

Source: Bloomberg

The week really has something for everyone, whether you are a stock picker or you trade FX, futures or fixed income. It’s interesting that the US volatility index (VIX) has fallen for four consecutive days and at 13.3 is hardly thematic of a market fearful of a breakout in volatility. I still think we need to use the S&P 500 as a guide and until the index can break out of its 2116 to 2180 range, then risk aversion should be contained. Recall 40% of the S&P’s market cap reports earnings this week, so the prospect of increased range expansion is in play, although the trend thus far is for better earnings with 80% of companies having beaten earnings per share (EPS) forecasts so far, by an average of 6.6%.

Among the trader-preferred stocks, watch for numbers from Caterpillar, Apple, 3M, Alphabet and Exxon this week.

The reaction in the USD this week is perhaps going to be the biggest theme and while we get a plethora of Federal Reserve (Fed) speakers in US trade tonight (Bill Dudley, James Bullard and Charles Evans), the highlight of the week will no doubt come from US 3Q GDP. Keep in mind that growth has averaged around 1% in the past three quarters, so a snap back to the consensus estimate of 2.5% would be welcomed. Q4 growth is largely expected to drop back however, with the New York Fed’s growth estimate being revised down to 1.4%. Hardly a ‘high pressure economy’. We also get one of the Fed’s preferred employment/inflation reads - the ECI (Employment Cost Index) on Thursday (11:30pm AEDT). This is likely to print a meagre 0.6%. The bar for a December rate hike is low, but all signs point to a ‘one and done’ rate hike.

The USD index has traded to the highest levels since February on Friday, predominantly as a result of EUR weakness. I am not one to fight a trend, as following the money flow in the FX market generally put the odds in one’s favour. However, the currency is starting to look a touch overowned and if we get a Q3 GDP print in-line with Deutsche Bank’s A 1.3% estimate, I would expect the USD to take a hammering. The event risk this week is elevated.

AUD/USD traded to a low of $0.7588 on Friday and the AUD itself has huge event risk this week with Wednesday's Q3 CPI print likely to cement the view that the cash rate is to stay at 1.5% well into 2017. As things stand, the market is pricing a 15% change of a cut in the November meeting and we would need to see a trimmed mean (core) inflation print of 0.2% (quarter-on-quarter) to push the implied probability of a cut into 30-40%. The consensus is for a slightly lower pace of inflation to 0.4%, but stabilisation in inflation trends would be welcomed. For FX traders, put AUD/CAD on the radar, with price some 30 pips from hitting the highest levels since September 2014.

Locally, the focus turns to the Australian banking sector with NAB detailing 2H 2016 earnings on Thursday, followed by Macquarie on Friday. ANZ and Westpac (CBArelease a trading update) the following week. As always, the investment community are keen to look out for any further contraction in margin, given the high competition and increased costs within the wholesale funding markets. This is not the only issue, with investors again focused on bad debts, capital, treasury and market income and costs. The banking sector managed to gain 0.8% last week, underperforming the material space (+1.6%), so we will see if there is any rotation this week. If go off their ADR’s (American depository Receipt), one can expect flat opens for both BHP and CBA on open.

US crude prices are not giving too much away for the energy space either, with price gaining 0.4% in Friday. The range of $50 to $52 remains in play and its clear that someone is happy to defend the $50 a barrel level. The USD and weekly inventory reports should drive this week, although much focus remains on commentary from OPEC nations around the November meeting. Iron ore fell 0.2% on Friday.

IG runs weekly webinars hosted by Chris Weston. Learn more about trading the markets, discover trade ideas and set yourself up for the week ahead.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand the risks and take care to manage your exposure.

Trading CFDs may not be suitable for everyone, so please ensure that you fully understand the risks involved. IG does not issue advice, recommendations or opinion in relation to acquiring, holding or disposing of a CFD. IG is not a financial advisor and all services are provided on an execution only basis.

The information on this site is not directed at residents of the United States, Belgium or any particular country outside the UAE and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.